Q3 2019 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Macquarie infrastructure cost Corporation third quarter 2019 earnings Conference call. At this time, all participants on the listen only mode. After the speaker presentation, there will be a question answer session.

Question. During this session you when you're supposed to start into one key on you touched on telephone. Please be advised that today's conference is being recorded.

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I'd like to have the conference over to your speaker today, It's a G.D. this managing director of Investor Relations. Please go ahead Sir.

And from Macquarie infrastructure corporations earnings Conference call. This couple in the third quarter 2019. Our goal today is being webcast in is open to the media. In addition to discussing our quarterly financial performance on this call. We published a press release summarizing the results and filed with the financial report on Form 10-Q .

It's bigger needs an exchange Commission materials, we released this morning and copies may be downloaded from our website www Dot Mccoy dot com Slash am I see before joining the proceedings over to Macquarie infrastructure Corporation's Chief Executive Officer, Christopher Frost, Let me remind you that this presentation is proprietary an old wise.

Our reserve any recording rebroadcast or other uses this presentation in whole or in part without the prior written consent of Macquarie infrastructure Corporation is prohibited.

Jason is based on information generally available to the public and does not contain any material nonpublic information. The presentation has been prepared solely for informational purposes and is not a solicitation of an offer to buy or sell any security or interbody. This presentation contains forward looking statements. We make in some cases use boards that conveying uncertain.

Do you future events or outcomes to identify these forward looking statements forward looking statements. In this presentation are subject to a number of risks and uncertainties, but description of known risks that could cause our actual results to differ appears under the caption risk factors in our form 10, k. actual results performance prospects or opportunity.

It's could differ materially from those expressed during the war implied by the forward looking statements additional risks of which were not currently aware could also cause actual results to differ the forward looking events discussed in this presentation may not occur. It's what we're looking statements were made as is the data. This presentation. We undertake no obligation to publicly update or revise any forward.

<unk> looking statements. After the completion of this presentation, whether as a result of new information future events or otherwise except as required by law. During today's call. We will at various times make reference to the non-GAAP measures earnings before interest taxes, depreciation and amortization for EBITDA and free cash flow as defined by.

A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in the tables attached to our earnings press release published this morning. In addition to Christopher Foster participating in today's call is Macquarie infrastructure corporations, Chief Financial Officer, Liam Stewart at this time it is my pleasure to introduce.

Macquarie infrastructure Corporation's Chief Executive Officer, Christopher Frost.

Thank you Jay.

It's supposed to be joining our call. This morning as many of you will have seen by now along with the publication about what it means press released this morning, we distributed a second release announcing our intention to actively pursue strategic opportunities and I see this decision to the future treatment alternatives reflects confidence in our ability to unlock significant addition.

No value for shareholders by selling them I see well selling each of its businesses well executing on other strategic transactions. The decision follows a thorough review by outboard edits and you'll strategic retreat. This fall. The review included analysis and support from a range of financial legal tax and industry advisors for the.

Past two years, we've been focused on executing initiatives and support the three strategic priorities. These have been one the investment in infrastructure about these incentives to the strengthening about balance sheet and three the prudent management of our valuable capital and was olson's as a result, we have street one out.

Portfolio to the successful sales of six smaller and noncore businesses on attractive too.

Used the proceeds from these sales to dramatically strengthened our balance sheet and with that extended the maturity of our 90 days and deployed or committed to deploy capital into each about businesses to improve both their competitiveness and there was W.

You will recall that I've said on many occasions the successful execution against these strategic priorities wouldn't know how do we improved the performance of them I see but also increased the number and quality of strategic alternatives available to us. Therefore, we believe now is the logical time for us to actively pursue these alternatives specifically.

We intend to pursue the sale of them I see pull to say look its businesses or other strategic alternatives to realize greater value for shareholders. In addition to sales for cash strategic alternatives could involve a spin off of one or more about businesses a merger what joint venture our focus will be on maximizing value for sure.

Hold is we have no and will not sort of time limits for these activities, but will advance the effect as quickly and efficiently as possible Justice, we have done with the sales of smaller and noncore businesses consistent with that objective, we have appointed financial and other advisors to assist us in any process along with this announcement I was noticing that pro.

It's really since the smoking and I see has entered into a disposition agreement with Macquarie infrastructure management USA. The external manager of the company. If he is public and as filed with the FCC. This morning, the agreements itself the terms under which the arrangement with them manager will be terminated for those businesses, which are sold or otherwise.

Existed as well as the time to be made to the manager the payment. These consideration in general so the future and then manager would have generated under the existing management services agreement the amount paid to the manager we based on the equity proceeds realized above a threshold level and after deducting transaction costs.

Texas is paying off or reserving for the payment all holding company Liberal days and the disposition payment the payment increases along a sliding scale based on increases in the proceeds realized they buy more closely locking the interest of the manager repos about shareholders to be clear we remain confident.

In the long term prospects for each about businesses. It is worth briefly reminding ourselves of the unique investment parents with 19 terminals and another 48 million barrels of bulk liquid storage capacity I MTT isn't what the largest providers the independent liquid storage and handling services in the U.S. <unk> benefits from Premier position.

And in two of the full major petroleum <unk> chemicals storage markets in the U.S. given its position in these key markets I MTT is well placed to capitalize on growing demand for storage and handling of bulk liquid products. This amount includes the storage and handling of petroleum products relates to the implementation of I'm 2020 as well.

Lets storage and handling of chemical products related to natural gas development in the U.S., we believe storage utilization of our MTT has troughed as evidenced by the consistent increases in utilization over the course of 29 team and I'm TT continues to benefit from a strong pipeline development opportunities both within.

An outside of its been slot.

70 fix based operations across the U.S. Atlantic Aviation is the preeminent provider or fuel and ground support services to the general aviation market. The fundamental driver of Atlantic Aviations performance the level of General Aviation flight activity. You is remains robust importantly, Atlantic aviation also in.

Joys a significant pipeline of opportunities so the expansion of operations at existing bases and the addition of new bases to its network and must see Hawaii comprises a stable regulated gas production and distribution business, a market, leading propane distribution business and some of the largest solar panel facilities in Hawaii together.

These operations are at the forefront of efforts to develop a clean up more sustainable energy complex in Hawaii. We also remain confident in the cash generating capacity about businesses as presently configured and in the health about balance sheet. We firmly believe the steps we've taken over the past to use has nice each of that business is more resilient as a result.

We are reaffirming out dividend guidance for the payment of one dollar per share for the fourth quarter were 29 team. In addition, based on our view of the performance about businesses, we intend to pay a dividend of one dollar per share per quarter in 2020 as it. This is seems out businesses in operations are performing at levels that support.

The dividend and does not assume a sale of any business. In addition, it is subject to general economic conditions instability in the broader market I'll provide additional color on on mix. That's in a few moments, but I don't want twice. The book. The continued stable performance was that businesses in the third quarter at this point I lost linking to share some of the highlights with you.

Thank you Chris I'll be brief.

I see financial and operational results for the third quarter of 29 thing were consistent with our expectations across the board by reflect continued good performance at Atlantic Aviation driven by effective management of the business and growth in general aviation flight activity year on year, an improvement in the contribution from and let's see how.

Why you, reflecting the size of the mechanical contracting business sold and right 20, I team and the continuation of the positive trends at all until you see that were present in the first half of the fine to today's results for the quarter reflect the ongoing increasing utilization, partially offset by lower average storage rights utilized.

I shouldn't averaged 85.2% for the quarter up from an average of I'd, 2.9% in the second quarter and 82.1% in the prior comparable period, we continue to expect utilization to be in the mid to high Eightys percent range ASCII yearend demand for heavy in the residual oil storage on the goal and Mississippi.

The revolver has driven the improved performance heavy products are used to feedstocks in secondary refining processes. As a result on <unk> heavy in the residual oil storage capacity on the lower Mississippi River is largely for other than the crude oil tanks related to the refinery, but on things he purchased in July .

Thoughts on two cases pools God Skylift that's to report the storage capacity. We continue to expect that I'd say to you will generate EBITDA for the full year between 297 and $297 million over 20, 240 $258 million, excluding the refinery termination fee.

Safe in the first quarter of this year orientated. He has also benefited from increased throughput revenue and increased ancillary services fees in 20 Nonsame.

I think ideation to do but a good result for the third quarter against Sai report, a general aviation Swat movements industrywide that were off 0.7% overall based on the sign if I I Gotta flight activity at the airport. Some we took that tie the national price increase by about 1% has been the second core.

Atlantic Aviation Salobo jet fuel will be shoes, and lost and generated more revenue from higher rentals, and increasing expenses, particularly salaries and benefits would you see amounts of improved gross margin flowing through to EBITDA.

That's exceeded our result also reflects approximately $3 million of negative adjustments primarily related to its my two its business. Excluding this the results for the third quarter. This you would be a modest improvement on the third quarter and 20 I'd say the adjustments were also impacted ratifications results for the full year of course however.

We are reaffirming EBITDA guidance for the business in a range of $275 million to $295 million and my three Hawaii generated substantially more EBITDA during the third quarter. If this year compared with last you will recall that the 20 I'd stainless all included the write down of the mechanical contracting business. It was subsequently sold.

In the fourth quarter of last year that aside I must say, Hawaii performed inline with expectations unseasonably warm weather this year reduced demand for gas modestly undesirable costs increase we expect MRC, Hawaii to deliver a full year results consistent with our product audit since well the corporate another segment recorded costs of 5 million.

In dollars compared with costs of $6 million a year ago. The results for the third quarter. This year reflects the recategorized I still transaction costs associated with the south of our renewables businesses to discontinued operations now that those transactions have caused approximately $2 million to being recorded an ongoing operations in the first half.

Off of the I'm pleased to report the causing of the style of our remaining operating renewable business as anticipated in September in total we generated net proceeds from the sales without the area. The interest in renewables businesses of approximately $210 million off the transaction costs and taxes, a viable liquidity principally balances on.

Existing credit facilities was approximately $2 billion at quarter end, we anticipate having a cash balance at year end of approximately $300 million the majority of which would be available to support out dividends sort to fund the portion about growth projects seem 2020 as foreshadowed during our last conference call below Mississippi River.

Subsided to levels of committed work on various growth and maintenance projects in the region to proceed as a result al spending on cross projects increased sequentially in the third quarter two approximately $52 million. We now expect to deploy between 200 and $220 million on cross projects for the year lower by about.

$50 million versus our original expectations are reduced expectations for 20, not saying represent largely a deferral of projects seem to 2020 importantly, the deferral is not expected to have an impact on either our consolidated EBITDA for our tax liability and 20 utilizing given most of the design projects was scheduled to be pricing.

Since 2020, well beyond with that I'll hand, the call back over to Chris for a few additional observations. Thanks, Liam between now and only 2020 with the support of our advisors, we will refine our analysis of various strategic alternatives as I mentioned a few moments ago. These could include the sale of am I see sales of one or more.

Without businesses or any of spin offs, a merger or joint venture as a means of generating value for shareholders. We will update the market. When the board has approved a specific course of action for has otherwise determined that further disclosure is necessary or appropriate. While we are settling the specific path forward. We will continue to focus on that Howard.

Priorities, particularly on investing in the infrastructure about businesses, we remain confident in our ability to further diversify the product key customer mix at 90 team by delivering use capacity connectivity and capability to position the business well over the medium to long term I.

Got it Atlantic Aviation, we will continue to pursue acquisition and development opportunities to expand the already significant footprint of the business and the services. It provides to customers in general, but its acquisitions and development projects will also add value in the form of extending the weighted average remaining lease life of Atlantic Aviations Port.

Folio and am I see Hawaii, and Hawaii guess, who benefit from ongoing investment in the reliability and sustainability for the energy complex in Hawaii. We are confident put down nearly 4000 employees across our businesses will continue to focus on what they do well, namely managing operating at businesses safely and to fish.

Lastly, while providing the high level of service and support the customers have come to expect in summary, we intend to pursue strategic alternatives that could include the sale of them I see orbitz businesses, we have solid businesses with good prospects and we are confident in our ability to deliver value in a sales prices should that be the most.

The appropriate path forward, just like we have announced sale processes todays am I see third quarter results were consistent with our guidance and reflective of the stability inherent in the asset class. We reaffirm our previously provided guidance with respect to the performance of the businesses over the balance of the year end the distribution of one dollar per share as a dividend.

In the fourth quarter and finally, we intend to pay a dividend of one dollar per share per quarter in 2020 . This assumes our businesses in operations are performing at levels that support the dividend does not assume the sale of any business and remains subject to general economic conditions and stability in the broader market. We sat I. Thank you.

Again for your participation in our call. This morning at this time I will ask our operator to open the phone lines for questions.

Ladies and gentlemen, as a reminder, just a question you wanted to press the star agenda, one key touched on telecom to withdraw your question. Please press the pound.

Please standby.

The piano roster.

First question coming from the line of Jeremy.

Again your line is open.

Good morning, Jeremy.

Good morning, just wanted to start off with the strategic.

Actions you guys are taken today and I'm wondering if you could provide a bit more color as far as a how active you. Your conversations have been with potential buyers of the businesses or you know any color that you could share as far as a appetite out there.

Yeah, Jeremy I think you would appreciate that we're not able to comment.

On on that.

Gotcha, Okay, and maybe you could talk a bit about the disposition agreement with a with the sponsor there in walk us through the the mechanics, how that works of it.

Yes, certainly I think the important point to know he sees the disposition agreement sets out the terms upon which the manager will be terminated following the sale of the company or any of the operating businesses or any other strategic alternatives that we may pursue.

Actually my prepared remarks, the disposition agreement includes a payment to the manager which seeks to represent the potential earnings that manager may have learned how to continue to operate.

We'll manage the business all the company.

Importantly, the payment is based on the equity proceeds realized to the company.

It is subject to a a minimum threshold.

We adjust the proceeds for transaction costs estimates of any taxes that will be payable on the disposition and also paying off all reserving for the payment of corporate level debt.

The payment.

Increases along a sliding scale based on increases in the proceeds that are realized.

Great I was just looking to the language a bit here and that there is something about the date of January 2022.

Is there anything could you explain a bit more about how the timeline works there.

The the disposition of disposition agreements.

Has a term of six years on us.

And the the the clothes that you are referring to you.

Represents an additional payment to the manager to the extent that.

We have successfully executed on the strategic priorities, well, sorry alternatives within that time period.

Got it and then maybe just a final one an I.M.P.T. here wondering.

Utilization stepped up a bit here, where do you see that kind of exiting the year.

Versus your prior expectations at this point and.

How do you think about the tradeoff between.

Increasing utilization in the rates that you guys are looking for the tenor of the contracts have all mixed together.

Jeremy if saying so clearly this quarter, we've seen a step up in utilization than ordinary so sort of first step off we've seen year over year as well. So we do say salons, if utilization continuing to improve our gotten so hey, you know sort of for those sort of year on spot utilization is in that sort of mid to high ideas right as well.

Thats consistent with what we said previously I think as you've seen the results this quarter notwithstanding the improvement in utilization sort of.

Average storage revenues.

Down sort of in the low single digit.

Single digit percentages year over year, so clearly as we say that improvement in utilization rises taking some on.

Cabo and as we've said, we anticipate utilization recovery will come first and then the right.

So if we continue to see sort of to see.

Doing guides without customers around meeting their names in respect of one sort of.

Utilization as well, but to also in terms of what we can do two weeks to extend.

Great. That's all for me Thanks for taking my question.

Right.

Our next question coming from your line of Tristan Richardson from Suntrust. Your line is open.

Hey, good morning Gents just.

Liam could you talk a little bit more about the the maintenance business in terms of a revision is that kind of a restatement of past results or or was it oh on asset write down just kind of curious because.

It's not a write down it's really just a reverse so there's some prior period maintenance revenue Radek does a little bit of tightness in supply Sue on the some of the wasted Raymond.

So it's really non core to the overall business and in the quarter. We had very good results from a volume perspective, yes, I activity was slightly stronger the Atlantic yards and it was across the industry, but I wouldn't anticipate that we see this going.

Helpful. Thank you and then just lastly on the disposition agreement I guess just.

Traditionally we just think of the sponsor is generally aligned in its ownership of am I see shares in would be.

Beneficiary of any value creation.

Portion it to its ownership as any other shareholder would but can you talk just about sort of the boards.

Decision and or just what the board was weighing as it.

Sort of offer disagreement to the sponsor.

It just and I think it's important to note that Macquarie is 15% shareholding is quite separate and distinct from its rights and obligations under the management services agreement. The two should be separated the disposition agreements that we that we talked about really deals with a highway treating the manager.

On termination following the sale of the company all the operating businesses. So I think it is important to sort of see them is quite separate and distinct.

Helpful. Thank you guys very much.

And our next question coming sometime.

Okay, TJ Schultz with RBC capital markets. Your line is open.

Hey, good morning.

Hi.

Would you so.

Saint Rose an eye MTT band separately or.

Hi, MTT to be sold in its entirety.

I think TJ you'd appreciate that way, we're not going to speculate at this stage on hypotheticals.

As I said in my prepared remarks that we're going to use the balances. This year were nearly part of next year to refine our analysis of the different strategic alternatives.

With the support of our advisors, and we will do that as efficiently and in a timely way possible.

And once the board has made a decision on the preferred course of action will look to update the market then.

Okay is that in the disposition agreement is there an incentive to.

Undertake a whole company transaction or is it the same either way if it's a whole company transaction or assets to different buyers.

There is no no differentiation with respect to the strategic alternatives being pursued.

Okay, and then and that agreement at just a lot of moving parts to have gotten through the whole thing can you clarify the base management fee waivers going forward, if if a clarifying.

Event occurs or the caps, you announced last year recouped or.

Are they waived going forward.

Hey, you will see in the agreement then you'll recall that the the manager agreed to waive a portion of the base management fee as part of the disposition agreement the manager has undertaken.

Not to reverse that way that during the the period if the agreement.

Okay.

Then just in the interim here do you how much and I MTTS issue operate the business how much capital do you expect to.

Deploy into I MTT next year for growth projects.

Yeah, Hey, rather than give you this sort of segment by segment breakdown stage Guy. So our guidance, we've revised down the issue to be sort of $200 million to $220 million I'm not largely reflects the sort of projects at on T.T., which will fall over into 2020 as well and then we have two.

By roughly $150 million of cross capital committed across all of the MRC verticals for next year and consistent with.

Historically.

A large proportion of bodies that on it.

Okay. Thank you.

Thank you.

I'm not showing any further questions at this time I would like to turn the conference call back over to.

For closing remarks.

Thank you for participating in a conference call today, we remain focused on continuing to execute on our strategic priorities and will again be on the road meeting with investors and analysts in the weeks ahead, we look forward to speaking with many during that time with that have a great day.

Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect good day.

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